QTUM - Defiance Quantum ETF Is Charged With Momentum

2023-10-02 07:14:43 ET

Summary

• The NASDAQ index for tech companies has rebounded, making quantum computing and artificial intelligence thematic ETFs more attractive for long-term investment.
• Talk of an economic recession has increased, making it advisable for retail value investors to be conservative and consider Defiance Quantum ETF in the QC and AI industry.
• QTUM is a low-risk opportunity with a diversified portfolio, strong momentum and upside potential, and a positive dividend history, making it an attractive buy.

Conditions Add Value

Two conditions changed since our last article, QTUM ETF: A Way To Invest In Quantum Computing And AI. In it, we assessed Defiance Quantum ETF ( QTUM ) as a potential Buy.

First, the NASDAQ index for tech companies began its recovery after dropping 33% in 2022, though shares of many companies are still down 10% or more in 2023. The numbers for quantum computing and artificial intelligence of thematic ETFs are strong, and, in our opinion, will get stronger over the long term. The CEO believes QC and AI are buffered against macroeconomic tribulations because QC and AI are impacting all sectors of life and the global economy.

A second condition is the intensification of talk and worry about an economic recession; that is expected to trigger a fall, perhaps a crash, in stock prices. Bank honcho Jamie Dimon now warns "It's a huge mistake to think (our) economy will boom with so many risks out there." Retail value investors are best off taking a conservative approach at this time by spreading risk across a host of companies yet partaking in the QC and AI investment rage.

Defiance Quantum ETF remains an attractive Buy and low-risk opportunity, in our assessment. Seeking Alpha's Quant Rating of the stock is also a Buy. It has a healthy, diversified portfolio potentially supporting a strong upside in share price. The share price is about +10% since last April. The stock has an A+ Factor Grade from S A for Momentum. Its holdings' breakdown spreads risk across continents and industry sectors in a sharpshooter-manageable number.

Profile

Defiance is a 15-year-old thematic ETF investing in about 72 Promethean quantum computing, artificial intelligence, and machine learning businesses. Some observers forecast that "the latest craze sweeping the technology industry" will grow ((CAGR)) between 33% and 50% over the next few years and have a significant impact on virtually every facet of life and the economy.

Tech sector stock prices softened in 2022 and flattened at the end of September '23, as reflected in total earnings and revenue. 2023 has been better as shares of the largest tech-themed ETF ( VGT ), with assets of $50B, are up 104% over 5 years, +32% in the last 12 months, and +31% YTD.

Defiance shares are keeping pace. Seeking Alpha's July '23 headline from Lunchbox Magazine screams about the QC and AI industry's momentum: "Quantum Computing Stocks Surge in 2023 on AI Potential." FY '22 was a rougher year when Defiance Quantum's assets plummeted 23%. Assets are restored to about $170M and Defiance Quantum's shares are +94% over 5 years, ~32% over the last year, and +23.4% YTD.

Defiance Quantum ETF has 91% of its funds invested in companies based in developed countries, 63.5% in North America, and 23% in Asia-Pacific. The spread adds to our confidence in the future upside for Defiance Quantum shareholders, especially during uncertain markets and the constant talk of a coming economic recession. ~18% of its 72 holdings are in 10 companies:

Dividend History

The ETF's dividend history of growth adds to the positive position we are sharing with retail value investors. On the downside is the historically small year-end yield investors sometimes have to pay as a high price for consistent safety. S A rates the dividend A- and Defiance Quantum's cost of doing business (expenses) at B-, up from C+ six months ago.

Takeaway

Defiance Quantum ETF is one of 7 ETFs managed by Defiance ETFs with about a total of $800M in assets. Defiance Quantum was rated 5 stars in 2023 out of 312 funds in the tech and communications sectors by Morning Star . Defiance Quantum spreads the risk across continents and a diversity of companies by size and focus; its boutique character of hands-on management benefits retail value investors.

Investor Place rates Defiance Quantum ETF second among its top "7 Quantum Computing Stocks Primed for a Breakout," as of two weeks ago. The writer describes the ETF as "a beacon for those seeking a balanced approach" to "the tumultuous waters of the emerging quantum computing sector…"

Defiance has momentum going for it. The shares were ~$39 in January '23, popped to $53 at the close of July, and pulled back to close last week at $47.95 but ticking up. Dozens of analysts follow the ETF; our consensus is an average target price of $58 over the next 12 months with a high forecast of over $65 per share. Sometimes it pays to invest in the magic of momentum.

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